November 12, 2012

Elsewhere (78)

The media misconception today is that what we need to speed up economic recovery is to end gridlock in Washington and have bipartisan intervention in the economy. However plausible that may sound, it is contradicted repeatedly by history. Unemployment was never in double digits in any of the 12 months following the stock market crash of 1929. Only after politicians started intervening did unemployment reach double digits - and stay in double digits throughout the 1930s.

There is nothing mysterious about an economy recovering on its own. Employers usually have incentives to employ and workers have incentives to look for jobs. Lenders have incentives to lend and borrowers have incentives to borrow - if politicians do not create needless complications and uncertainties. The Obama administration is in its glory creating complications and uncertainties for business, ranging from runaway regulations to the unknowable future costs of ObamaCare and taxes. Record amounts of idle cash held by businesses and financial institutions are a monument to the counterproductive effects of Barack Obama’s anti-business policies and rhetoric. That idle money could create lots of jobs - net jobs - if politics did not make it risky to invest.

Obama has already laid the foundation for his next four years of Presidency – more green jobs, tackle global warming, raise taxes on the rich and create jobs for the poor. That will come at a hefty price of further government spending. In the first four years of his term Obama increased the Federal Debt by more than 45%; however, with more than $5 trillion spent in promoting everything from solar panels to housing, the economy only grew by 7.1% during the same time frame (or a total of $905 billion.) In other words it took more than $5.60 of debt to create $1 of economic growth... The amount of debt required today to create a single dollar’s worth of GDP today is clearly unsustainable.

In the course of his first term, Obama increased the federal debt by just shy of $6 trillion and in return grew the economy by $905 billion. So, as Lance Roberts at Street Talk Live pointed out, in order to generate every dollar of economic growth the United States had to borrow about five dollars and 60 cents. There’s no one out there on the planet - whether it’s “the rich” or the Chinese - who can afford to carry on bankrolling that rate of return.

Comments

Obama is not all to blame. Congress passes laws. Obama just has a veto. States, Councils and Cities create more petty interference than the federal law makers can do with the current grid locked congress.

If only. Obama has the option of the Executive Order, and he has been using it freely, to rule by decree. Then there are the Cabinet-level federal agencies who answer only to the President. In just one example, Congress has rejected the idea of imposing a Carbon Tax "to save the planet", so the unelected Environmental Protection Agency has taken upon itself to do so anyway, through onerous regulation and fines. In the Lightworker's second term, if Congress chooses to oppose him, they will find themselves ignored and irrelevant. Not exactly the signs of a healthy Republic...

Unfortunately, WWII provided the false cover that FDR's policies helped pull the country out of the Great Depression. Without the war we would have seen a prolonged period (which is similar to what we're going through now) of low or negative growth and chronic high unemployment, which may have stopped us from repeating the same mistake.

The state's dairy industry, one of the country's biggest, has been squeezed for years by soaring feed prices and slowing economic growth. Elsewhere, those conditions have caused milk production to shrink, pushing up prices. But in California, farmers say gains from higher prices have been muted by the state's formula governing the price that cheese makers pay for their milk—a quirk in state rules that some farmers say has forced them out of business.

After years of profits, Greg Anema's dairy farm in Chino, Calif., started to suffer when corn prices spiked in 2006 and increased the cost to feed his 3,400 cows. It got worse after the global economic slowdown hit demand for milk.

Now, Mr. Anema says he is closing his family's dairy because it has been selling milk to California cheese makers for far less than it would have fetched in other states for the past two years.
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Leslie Butler, an economist at University of California at Davis, said the state has been reluctant to change its pricing because "processors have pretty strong lobbies."
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State law requires California to keep the milk-for-cheese price in "a reasonable and sound relationship" with the federal price. California dairy farmers say that for the past two years, they have been receiving $2 less per hundred pounds of milk for cheese than farmers in other states.
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Rob Vandenheuvel, a spokesman for the Milk Producers Council, said the two sides are having difficulty getting past the bitterness. "In some ways, we're their partners in the industry," said Mr. Vandenheuvel, "but unfortunately every time we meet now, it's a high-stress situation."

Some dairy farmers and cheese makers are suggesting the market should decide the price.
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